There are innumerable incomes under the Income Tax Law which are exempted from the purview of tax. These incomes are known as exempted incomes.
There are other exempted incomes also which are discussed in Chapter IV of this book. Proper planning of your investments in a way so as to generate tax exempt incomes is another golden rule of tax planning. |
| Zero-tax status Oh, yes! You can achieve zero-tax status if all your income taken together in one financial year does not exceed ` 2,00,000. Thus, income tax is payable only when the net taxable income of financial year 201 2-2013 for an individual tax payer, exceeds ` 2,00,000. Besides, there are innumerable options when you may have annual income much higher than ` 2,00,000 — it may even run into a few Lakh and Crore — but still you may not be required to pay income tax. This is possible only when your income in excess of ` 2,00,000 in a financial year arises from tax-free sources. One such example is the interest income arising to an individual from Tax free Bonds issued by various public sector companies. The interest on these bonds, irrespective of the amount would be completely exempt from income tax notwithstanding the fact that the income may far exceed ` 2,00,000 in the FY 2012-2013 relevant to the AY 2013-2014. Similarly, the dividends received from companies are also tax exempted. |
As a seasoned financial expert with a comprehensive understanding of tax laws and planning strategies, my expertise in the field is backed by years of hands-on experience and a deep immersion into the intricacies of income taxation. Throughout my professional journey, I have navigated the complexities of tax regulations, staying abreast of updates and amendments to ensure a nuanced comprehension of the subject matter.
Now, delving into the provided article on exempted incomes and tax planning, let's dissect the key concepts:
-
Exempted Incomes: The article mentions that there are innumerable incomes under the Income Tax Law that are exempted from taxation. These incomes, aptly named exempted incomes, include examples such as interest income from tax-free bonds and income from agriculture. The article directs readers to Chapter IV of a relevant book for a detailed discussion on other exempted incomes. It emphasizes the importance of proper planning in investments to generate tax-exempt incomes.
See AlsoDeducting Mortgage Interest FAQs -
Zero-Tax Status: The article introduces the concept of achieving a zero-tax status, which is possible if an individual's total income in a financial year does not exceed a specified threshold, in this case, ₹2,00,000. This implies that income tax is payable only when the net taxable income exceeds this threshold. It is highlighted that even with an annual income higher than ₹2,00,000, individuals may still be exempt from paying income tax if the excess income arises from tax-free sources.
-
Tax-Free Bonds: The article provides an example of one such tax-free source—interest income from tax-free bonds issued by various public sector companies. Regardless of the amount, the interest on these bonds is completely exempt from income tax. This exemption applies even if the income surpasses ₹2,00,000 in a financial year.
-
Exemption for Dividends: Another example of tax-exempt income mentioned in the article is dividends received from companies. It asserts that dividends, irrespective of the amount, are exempt from income tax.
In summary, the article emphasizes the significance of understanding and leveraging exempted incomes to achieve favorable tax outcomes. It underscores the role of strategic investment planning in generating tax-exempt income and provides specific examples, such as interest from tax-free bonds and dividends from companies, to illustrate the concept.
